Bonddad, permit me to offer an observation regarding the need for the transports to confirm the industrial's rise. That approach was valid for an extractive and manufacturing economy in which things get moved around.
In a service/information economy, wouldn't a better confirmation be found in an index focusing on telecommunications and maybe airlines? Those would represent the transport of electrons and people involved in passing information between operating nodes.
First, I still think a confirmation from the Transports is vital for two reasons. First, the US still makes things. Secondly, the US consumes a great deal and a lot of the products we consume come from overseas which still have to get to the retail level.
However, I also think that a confirmation from telecommunications is a very interesting idea. The US is shifting to a more information/knowledge based economy so for the economy to grow communications would also have to grow.
To that end, here are three charts of the TTH or Telecom Holders Trust.
Three Year Chart/1 Week Time Frame
The three year chart is very straightforward. The index rallied from mid-2006 to mid-2007 and then sold-off. The index broke the uptrend in early August of this year.
1 Year Chart, 1 Day Time Frame
The one year chart simply offers more detail of the change in trend and the trend break. What's encouraging about this chart is the drop has been gradual and disciplined. Aside from the sharp drop in early August when all of the indexes dropped sharply.
Six Month Chart, 1 Day Time Frame
The six month shows a chart that is clearly moving lower, but in a very disciplined way. Notice the following.
1.) The index dropped to a level above the 200-day moving average and then rallied. That means at minimum traders don't want to send this index into bear market territiry.
2.) The three shorted SMAs (10,20 and 50) are all moving lower, although the degree of the drop is gradual.
I want to add that I'm not completely sold on this idea. It's not that it's a bad idea by any stretch of the imagination. It's that there area a lot of ins and outs that need to be thought through. However, it's a damn good observation and one that deserves serious consideration.
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Let me go at this from the other side. There are some bottom up factors that I think might be affecting transports. I'm most familiar wih trucking but I'll make a stab at the rest of it.
Trucking companies by and large engaged in a massive "pre-buy" in '06 of new trucks to avoid new EPA enviromental regulations taking effect January 2007 that would add appx 20k in lifecycle costs to a heavy truck.
This growth in capacity and (capital tied up) unfortunately coincided with a downward trend in truckload shipments during the important "surge" season (roughly late September to Early December), resulting in lots of expensive equipment sitting idle. Freight volume is still down.
ATA Truck Tonnage report
Rail carloads and intermodal traffic are down as well
AAR press release
So you have excess capacity which has reduced carrier pricing power. Fuel and labor costs are still high. Shippers are also using the courts to try to reverse fuel surcharges from air, rail ,and truck tranport.
Also in trucking there is regulatory uncertainty. The hours of service rules that govern how many hours drivers may drive and work were partially overturned by the courts. A request for a stay of the decision is before the courts, but if it is overturned carriers will face a cut in productivity. There is also uncertainty about the Mexican trucks program. The administration skirted a law passed by Congress intended to delay or stop this program. Now Congress has moved to cut off funding for the program. Once it is clear when and how the market will be opened then it will be easier to pick out the winners and losers.
So it seems to me that weak freight volume is part of the story, but it might not be all of it.
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